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Saving for College – The Basics of 529 Plan

December 30,2011 by: Dallas Browne

The best way to prepare for a college degree is to save for it. While there are now many different ways to obtain financial aid in order to pursue a college degree, it always pays off to prepare and save for it. 529 plan is a savings plan aimed for education. It is operated by the state or the educational institution. Its name came from the Internal Revenue Code’s section 529 that states types of savings plans back in 1996. Most states now offer 529 plans. They may differ in features and benefits. For as long as you satisfy a few basic requirements that go with your 529 plan application, you can also be given tax benefits.

But you must still do your own research for some states do not offer tax incentives. 529 plans can be categorized as savings plans or prepaid plans. Savings plans work like an investment through a mutual fund or similar financial instruments. Investors will be asked to choose from various investment options. The value of the account will depend on the option chosen.

Prepaid plans, as the name implies, allow investors to pay in part the cost of state college education, they may also be converted as payment for private institutions, but there is a separate 529 plan for private institutions. If you decide to apply for this type of investment, you can directly deal with a 529 plan manager or through a financial advisor. Before enrolling for college, you should check first if the university is eligible for 529 plan. You can easily check this information online.

Among the benefits of 529 plans are federal and state tax benefits. The one applying for the plan is the one who has total control of the account and not the beneficiary, which means that withdrawals are decided only by the donor. Funds can even be reclaimed with no questions asked, but this will already be subject to tax. Securing a 529 plan can be a very convenient way to save up for your child’s college expenses. It is considered to be low maintenance. Enrollment is also simple as soon as you decide to use 529 plan. This type of plan can be used by everyone, regardless of their age and income. Most parents find this more advantageous compared to educational insurance plans.

A college degree is important to land a rewarding career and to develop a person’s skill. It is better to save up for future college education rather than to obtain student loans. Even if the government and various private organizations are now offering financial assistance to students, it is still smarter to just prepare for the future by saving. Using a 529 plan is one of the best ways to save up for college because of its advantages. You can do your own research as to the details of the plan according to your state before deciding to choose one. You must consider your own objectives and personal circumstance before deciding which 529 plan to use.

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